When companies are required to reveal their greenhouse gas emissions, the impact may extend beyond greater transparency. New research suggests those requirements can also push businesses to develop more environmentally focused technologies — although the investment may come with financial trade-offs.
The study, published in Review of Accounting Studies, was co-authored by Sung-Yuan (Mark) Cheng, assistant professor of accountancy at the University of South Florida, with Brian Bratten and Tyler J. Kleppe of the University of Kentucky.
Sung-Yuan (Mark) Cheng
The researchers studied greenhouse gas disclosure mandates adopted by Wisconsin, New Jersey, Maine and Connecticut between 1993 and 2006. They tracked corporate patents related to climate-change mitigation or adaptation as a measure of green innovation.
Companies affected by the mandates produced an average of 0.686 additional green patents per firm each year — a 215% increase over the sample mean. The effect was even stronger among companies with greater ownership by environmentally focused investors, suggesting that investor priorities can shape how businesses respond to disclosure requirements.
The researchers also found that affected companies later posted stronger environmental performance. The financial picture, however, was more complicated. Some firms experienced lower future return on assets, particularly those that had not invested in green patents before disclosure became mandatory.
Authors: Brian Bratten and Tyler J. Kleppe, University of Kentucky; Sung-Yuan (Mark) Cheng, University of South Florida.